Boo! Scary accounting tales to keep you up at night – and how to avoid them

November 5, 2014

Halloween is the one night of the year when the spirits of the past come back to haunt us. But for many accountants, there are scarier things going on in their Excel spreadsheets every single month, especially when it comes to Excel Reconciliation. According to various studies, around 88% of spreadsheets contain errors. But how do these errors creep in? What kind of damage can they do? And how can we stop them from haunting us?

The howling hound of human error

The most common type of error comes from people typing or pasting data incorrectly into cells in Excel. When dealing with over 150 rows of information the human mind is vulnerable to fatigue. This fatigue leads to small errors creeping in – small errors that can have huge ramifications.

Another example is the catastrophic spreadsheet error by JP Morgan Chase employees that led to $6.2 billion losses – an event nicknamed the “London Whale”. The model the bank used to monitor and limit the risk their London traders were taking on involved copying and pasting data between spreadsheets. A small error in the copying and pasting procedure left them with a rather large black hole and rather red faces as they had to explain the losses to Congress.

How to banish the howling hound of human error

With automatic account reconciliation software the majority of your accounts can be matched automatically, leaving only the most challenging entries to reconcile manually. This automation all but eliminates errors and drastically cuts down on the number of entries to be matched manually, helping to minimise mental fatigue.

The frightening phantom formulas

Another key area where errors occur in spreadsheets is when using formulas to complete calculations. It is not always obvious where the formulas sit within a spreadsheet, and it can be tricky to figure out exactly where they are pulling data from.

A somewhat ironic example of this is actually an advert for Excel itself by Microsoft. A poster advert on the New York subway system shows a spreadsheet of holiday costs. Unfortunately for Microsoft, the figures used do not actually add up to the total shown – an example of where the user has used a SUM formula and then added in extra rows not included in the original formula.

A formula error that had a more serious impact was made by Reinhart and Rogoff in their 2010 paper on economics. In the paper they claim that when a country’s debt level goes above 90% of GDP the country’s economy shrinks by 0.1%. However, a coding error meant that the first five countries in their dataset were excluded. Their study has been used and referenced by politicians and economists around the world to make a case for continued austerity – who knows, the truth may be quite different.

How to exorcise the frightening phantom formulas

A nice simple way of negating formula errors is to just stop using them. But then you would have to complete all of the calculations by hand, leading back to a high probability of mental fatigue and human error. However, if you use Account Reconciliation software, such as Adra Match ACCOUNTS, all the necessary formulas are built-in. As such there is no need to create your own formulas, hidden away in an Excel document – all the figures you need will be automatically calculated and produced in a quick and easy reporting function.

It is fun to dress up on Halloween and tell ourselves scary stories. What is not fun is those slightly less elaborate stories about spreadsheet errors leading to billions of dollars in losses.

So get a good steady grip on the uncertainties of Transaction Matching by downloading and checking out our free white paper. It reveals what so many of us have overlooked and the time that can be saved.